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Note on Trial Balance

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The list of debit and credit balances of all the ledger accounts extracted on a given date is known as trial balance. It is a statement rather than an account. It is only the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is the prepared on a separate sheet of paper in order to verify the arithmetical accuracy of books of account.

Some of the main definitions of the trial balance are given as below:

"Trail balance is the list of debit and credit balances, taken out from the ledger; it also includes the balances of cash and bank taken from the cash book." - R. N. Carter

"The statement prepared with the help of ledger balances at the end of financial year (or at any other date) to find out whether debit total agrees with credit total is called trail balance." -R. Pickle

"Trail balance is a list of balances debit or credit standing in the books of a trade at any given date." - J. R. Batliboi

From the above definition, it is obvious that the trial balance is a statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses extracted from the ledger on a given date. It is prepared to examine the arithmetical accuracy of the books of accounts. It also facilitates for preparing the final accounts.

Objectives

The main objectives of preparing the trial balance are as follows:

To obtain summary information:The summary of all the ledger accounts is placed in one place in the trial balance. It presents the summary balances of all the assets, liabilities, capital, incomes and expenses of a particular date.

To help in making comparison and decision:The trial balance compares the balance of assets, liabilities and capital, and incomes and expenses of two different periods. It helps in the proper judgement of the business activities to make the important decisions.

To check arithmetical accuracy:The trial balance helps to check the arithmetic accuracy of the books of account. It checks whether the total of debit balances i.e expenses and losses equals the total of credit balances i.e incomes and gains or not. If the trial balances agree, the arithmetical accuracy is proved. If it does not agree, it includes the existence of errors in the books of accounts, which needs to be located and rectified.

To facilitate for preparing the final accounts:The trial balance serves as the basis for preparing the final accounts i.e trading account, profit and loss account and balance sheet. The balances of the trial balance which are incomes and expenses are placed on the trading and profit and loss accounts and the balances of assets, liabilities and capital are placed on the balance sheet.

To help for locating and rectifying errors:The trial balance helps in locating of the accounting errors at an early stage. Its disagreement is the signal for the existence of accounting errors in the books of accounts, which compels to locate and rectify them in near future.

To help in minimizing errors and frauds:The trial balance helps to minimize the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accountant to maintain books of accounts with great care and honesty.

Very Short Questions

A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real & nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

According to R. N. Carter,“Trial balance is the list of debit and credit balances, taken out from the ledger; it also includes the balances of cash and bank taken from cash book.”

According to J. R. Batliboi,“Trial balance is a list of balances debit or credit standing in the books of a trader at any given date.”

From the above definitions, it is obvious that a trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is the prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account.

A trial balance is prepared for following reasons: -

To obtain summary informationIt provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

To help in making comparison and decisionIt helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making aproper judgment of different activities of the business and arriving at important decisions.

To check arithmetical accuracyThe trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy. If it does not agree, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

To facilitate for preparing the final accountsIt serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

To help for locating and rectifying errorsIt helps to locate the accounting errors at theearly stage. It's disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

To help in minimizing errors and fraudsIt helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

The trial balance can be prepared on daily or monthly or yearly basis as per the requirement of the business. It is prepared on a given date in a separate sheet of paper. It is prepared either using total method or balance method or compound method. The following are the procedures of preparing trial balance:

Total methodUnder the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.

Balance methodUnder the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.

Compound methodUnder the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts. Hence, the compound method is the combination of total and balance methods, which is also known as total cum balance method.